Archive for the ‘Tax Fraud’ Category

Don’t Go to Lawrence Siegel to Have Your Taxes Done

Sunday, November 15th, 2015

There are good tax preparers, bad tax preparers, and then there’s Lawrence Seigel. Mr. Siegel, who resigned from the California bar in 1994 and lost his CPA license in 1997 after being convicted of tax evasion (among other crimes) also faces a 20-count criminal complaint “…charging him with Medi-Cal fraud, grand theft, forgery, identity theft, financial dependent adult abuse and tax evasion.” The US Department of Justice filed a civil action against him, and he was a no-show for the court date last Monday.

As for what Mr. Siegel is alleged to have done, he supposedly has impersonated California attorneys, used multiple aliases, and proposed tax fraud schemes. From the DOJ press release:

Siegel falsely advised his customers, typically high earners who own profitable businesses, that they can establish companies in another state, usually Nevada, then treat their California home as an out-of-state corporate office. Siegel claimed that doing so would transform a vast array of non-deductible personal expenses into tax deductible business expenses, according to the complaint. The complaint details how Siegel boasted about this tax fraud scheme in e-mails, including one where Siegel falsely claimed that his customers are entitled to free housing as tax-free compensation from their out-of-state companies and that “[t]he housing can [b]e luxurious and cost thousands a month” because “[t]here is an assumption that corporations don’t waste money.”

Well, housing can be expensive in California. That said, personal expenses aren’t deductible.

For example, the complaint states that Siegel deducted on one couple’s tax returns purchases at Tiffany & Company, Royal Caribbean Cruise Lines, Louis Vuitton and Princess Cruise Lines. Siegel allegedly attempted to conceal these fraudulent deductions from the Internal Revenue Service (IRS) by lumping them together and reporting them as large expenses for “supplies” or “medical records and supplies.”

It’s great if you can get away with it. Mr. Siegel appears to be lucky to have escaped a federal indictment, given that he is also accused of providing false documents to the IRS and lying to IRS officials. In any case, Mr. Siegel, if found, faces trial in California on that criminal complaint.

As a reminder, if it sounds too good to be true it probably is. No, you can’t deduct personal expenses if you run them through a corporation. And while I wish I could take a deduction for the cruise to New Zealand and Australia that I took last year, I also know the law–and you just can’t do that.

Chaka Fattah, Jr. Guilty of Tax and Fraud Charges

Sunday, November 8th, 2015

Chaka Fattah Jr., son of Democratic Congressman Chaka Fattah Sr. (D-PA), was found guilty on Friday of 22 of 23 tax and fraud charges. As the Department of Justice press release notes,

Between 2005 and 2012, Fattah Jr.: made false statements to banks to obtain loans; made false statements to banks and the Small Business Administration (SBA) to settle loans for less than what was owed; filed false federal income tax returns; failed to pay federal taxes; and stole from the Philadelphia School District, which had received federal funds for its operations.

His father, Chaka Fattah Sr., is under indictment on separate racketeering charges filed earlier this year.

Chaka Fattah Jr. is scheduled to be sentenced in February. He’s looking at a “substantial term” at ClubFed.

Over 1,100 Returns Filed from Two Addresses Lead to Two Heading to ClubFed

Sunday, October 25th, 2015

Two separate cases out of Broward County, Florida highlight that if you submit lots of tax returns from the same address even the IRS will get suspicious. A former band director and another Floridian will be heading to ClubFed in separate identity theft cases.

In the first case, a former band director apparently used his position to steal 419 identities. From the DOJ press release:

According to court documents, IRS-CI investigators noticed that 419 suspicious tax returns claiming refunds totaling $754,470 were filed from Rogers’ residential address from January 25, 2014 to April 20, 2014. Based on this information, a search warrant was executed at Rogers’ residence and agents discovered and seized papers, notes, and documents containing thousands of PII (including names, dates of birth, and social security numbers) including PII contained in records of more than a dozen Broward County School District students, some dating back to the late 1990s and others into the late 2000s. Agents also seized numerous printed 2013 tax returns.

Delvis Rogers of Hollywood, Florida admitted when his apartment was searched (under a search warrant) that he had prepared and filed hundreds of phony tax returns from his apartment. Mr. Rogers pleaded guilty to two identity theft related charges. He received 61 months at ClubFed and agreed to make restitution to the IRS of $129,321.

In the second case, Keyiona Wright of Plantation, Florida pleaded guilty to conspiracy to commit wire fraud and aggravated identity theft. From the DOJ press release:

According to court documents, from March 25, 2014 to May 6, 2015, forty-six federal tax returns were filed with the IRS claiming refunds of $135,196 from an IP address in Plantation. From September 16, 2014 to May 5, 2015, at least 688 rejected federal tax returns, claiming refunds of $733,276, were electronically transmitted to the IRS from this same IP address. Agents confirmed that the IP address was assigned to an apartment rented by Wright.

A search warrant found notebooks, bags, documents, papers, and computers containing personal identification information. “A forensic analysis revealed that the documents, computers, and debit/credit cards seized from Wright’s residence contained identifying or account information for over 14,000 individuals.” And agents found another computer that had a video with Ms. Wright counting money. At least she didn’t post it on Facebook like the Queen of Tax Fraud.

In the end, Ms. Wright pled guilty. She’ll have plenty of time at ClubFed to think over her decisions; she was sentenced to 7 years.

There Is No Magic OID Process

Sunday, October 4th, 2015

One of my clients handed me a 1099-OID today. That’s income to him, duly noted on his now-filed tax return. A different individual decided to promote a very different OID plan, an “O.I.D. Process.” He’ll be spending nearly six years at ClubFed.

Duffy R. Dashner (aka Kevin Dashner) was a resident of Reseda, California (in the San Fernando Valley area of Los Angeles). He and co-conspirators founded a business called O.I.D. Process. The business filed phony Original Issue Discount (OID) refund claims–a whopping 200 refunds claiming $228 million.

The OID refund scheme has been around for some time. There’s supposedly a secret account that you can have access to by just filing some Form 1099-OIDs. You just claim that the money was all withheld, so you didn’t get any of it, and soon you have a tax refund! What can go wrong (besides it being illegal)?

Anyway, Mr. Dashner decided to promote his business via website. He had weekly conference calls to clients to help them prepare the returns. They received a 20% “refund acquisition fee” for all checks issued by the IRS, and they demanded clients change their address to an unnamed attorney (well, the DOJ press release says he’s an attorney but who knows for how long that will continue) to make sure that the conspirators got their share of the ill-gotten gains. Clients also had to pay an up-front registration fee.

Mr. Dashner pleaded guilty in June to conspiracy to submit false claims. He received 57 months at ClubFed and must also make restitution of $1,769,418. If someone tells you there’s a magic way of anyone getting money from the IRS by filing a Form 1099-OID, run, don’t walk, in the other direction.

Defalcations Send Randolph Scott to ClubFed

Sunday, September 13th, 2015

When I hear the name Randolph Scott, I think of the late actor. He played leading men (generally heroes in Westerns) during his long and illustrious career. This Randolph Scott is anything but a hero.

Randolph Scott of Doylestown, Pennsylvania (near Philadelphia) was an estate and probate attorney. He represented an estate, one valued at more than $6 million (at date of death in 2005), so an Estate Tax Return needed to be filed. Estate tax of $520,351 should have been paid to the IRS. That didn’t happen.

Instead, Mr. Scott diverted “approximately $2,317,917.67″ from the estate to his tax office. That’s theft. In 2009, the executor of the estate died. From the Department of Justice press release:

Scott failed to disclose the executor’s death so that Scott could continue to receive money intended for the estate at his law firm. Scott would then forge the deceased executor’s signature and deposit funds intended for the estate into accounts under his control. Scott had the successor executor sign a document renouncing the position of successor executor so that Scott could continue to forge the signature of the deceased executor and divert money belonging to the estate.

Mr. Scott pleaded guilty back in March to mail fraud, tax evasion, attempting to interfere with administration of internal revenue laws, and three counts of failure to file income tax returns. He was sentenced on Thursday to four years at ClubFed and must make of the $2.3 million he stole. Unlike a Randolph Scott movie, the only happiness with this ending is that this Randolph Scott won’t be doing this to anyone else.

The Family that Commits Tax Evasion Together Goes to ClubFed Together

Sunday, September 6th, 2015

You own a payroll company with your son. It’s been a good year, so you decide to give yourself a bonus from the corporation. There’s nothing wrong with that–it’s your company, and you certainly can pay yourself whatever you feel is appropriate. You do need to report that income on your tax return, of course. That last step was omitted by the subjects of this post.

William and Robert McCullough are a father and son who reside in Westborough, Massachusetts. They own a payroll company, Harpers Data Services, in Worcester, Massachusetts. There company did quite well from 2007 to 2012, as they deposited $11 million in two company bank accounts. They didn’t tell their company accountant about those two accounts. Well, the corporation only omitted $3.78 million from the corporation tax return.

Meanwhile, William McCullough wrote checks to himself, his son, and Gary Davis, a former owner of the business. One series of checks totaled $4.7 million; another was $2.7 million. That allowed the McCulloughs and Davis to avoid $1.7 million of personal income tax. The McCulloughs and Davis pleaded guilty to various tax evasion charges last week. William McCullough also pleaded guilty to wire fraud.

From 2009 through 2011, Harpers maintained client trust accounts and a client tax account. These accounts contained client funds, which were to be used to pay employees’ paychecks and employees’ federal and state taxes. From 2009 through 2011, William McCullough took approximately $1 million from the client trust accounts and deposited it into a Harpers account. In 2010, he took $750,000 from the client tax account and deposited it into a Harpers account. At the time William McCullough took this money, the funds belonged solely to the clients of Harpers Data Services. McCullough’s fraud resulted in a theft of approximately $1.8 million dollars.

The McCulloughs and Mr. Davis will almost certainly be heading to ClubFed. This is yet another reminder for everyone who uses a payroll service to join EFTPS and make sure your payroll deposits are being made. Trust but verify is excellent practice in payroll.

How to Commit Tax Fraud 101

Sunday, August 23rd, 2015

The Florida Center for Investigative Reporting (FCIR) has an article spotlighting tax return fraud. That in itself isn’t surprising given that Florida is the hotbed for this crime. What is depressing is how easy it is to commit the crime. While the Social Security Death List is no longer available for the fraudsters, FCIR reports that they turned to a commercial service called The site is designed for finding your ancestors, but enterprising crooks discovered it could be used to commit tax fraud.

My guess is that old records contain social security numbers–the numbers weren’t as big a deal in the pre-Internet era–and they just find people in that manner. Sure, they are undoubtedly violating the Terms & Conditions of the website but if you’re going to commit a felony (or several), what’s the big deal about violating some T&C’s?

Meanwhile, two press releases from the East Bay (near San Francisco) highlight the magnitude of this problem. Ebony Standifer conspired to obtain false identities and used them to obtain $193,602 in false refunds. She pleaded guilty this week to one count of conspiracy to file false claims and one count of aggravated identity theft. Three other East Bay residents pleaded guilty to conspiracy to file false claims in what appears to be a separate tax fraud scheme. These individuals received $287,498 in false refunds.

Until the IRS makes it far more difficult for the fraudsters, this epidemic will continue. As I’ve said, why rob banks?

Former Oklahoma State Senator Embezzled $1.2 Million & Committed Tax Fraud

Sunday, August 23rd, 2015

Ricky Brinkley used to be a State Senator in Oklahoma; he represented Tulsa and nearby areas. He resigned last week and then pleaded guilty to five counts of wire fraud and one count of subscribing to a false tax return.

Over a ten-plus year period Mr. Brinkley had fraudulently obtained over $1.2 Million from the Better Business Bureau. Mr. Brinkley was President and CEO of the organization; he created phony invoices and used the money for personal expenses and to support his gambling habit. He also admitted to not reporting $148,390 in income on his 2013 tax return.

Mr. Brinkley agreed to forfeit $1,829,033.66–the proceeds from his embezzlement. FBI Special Agent in Charge Scott Cruse of the Oklahoma City Division stated,

[C]riminal investigations against those holding positions of public trust are never easy, but they are among some of the most important cases that we do in the FBI. That is because we hold our public servants to a higher standard. Our citizens expect their public servants to uphold the law in all aspects of their lives, whether it be in connection with their public responsibilities or in their personal endeavors.

Mr. Brinkley faces a term at ClubFed; he’ll be sentenced later this year.

Two Sets of Returns Aren’t Better than One

Sunday, August 16th, 2015

As I get ready to teach a course in ethics, I have plenty of practical examples of things not to do. Today I look at the idea of preparing one set of tax returns for clients but using a second set of returns when submitting the returns to the IRS. Of course, those second returns had higher refund amounts with the difference being pocketed by the preparers. After all, what’s a little tax fraud?

Well, it’s a crime, and Ahmed Grant and his wife Lillian Madyun will likely get to sample ClubFed. Ms. Madyun also has the dubious distinction of being a former IRS employee. The two pleaded guilty to conspiracy to commit fraud against the United States last week. The two had pocketed at least $160,000 from their scheme (which they did in the Memphis area) but they face up to ten years each at ClubFed and fines of up to $250,000 each.

There’s Innocent FBAR Violations, and There’s This

Tuesday, August 11th, 2015

It’s one thing when Aunt Sally inherits €8000 in the old country, it sits in the bank for one day, and she then gets the money the next day in the US. Yes she should have filed an FBAR, but it really is an innocent violation.

Then we have what David and Nadav Kalai did. The two (father and son) headed up United Revenue Service, a tax preparation firm with offices in Orange County, California and Bethesda, Maryland. The Kalais’ methods were of the very deliberate violation of the rules on FBARs:
– Take a high wealth individual,
– Have him form a foreign corporation in Belize,
– Have that corporation get a bank account with Bank Leumi (an Israeli Bank) in Luxembourg, and
– Don’t disclose any of this to the IRS, FINCEN, or the Department of the Treasury.

Last year they were convicted of one count each of conspiracy to defraud the IRS, and two counts of willfully failing to file an FBAR. Yes, they practiced what they preached: They used the same methods to not disclose their own foreign bank accounts.

The sham corporations that the co-conspirators incorporated in Belize and elsewhere were used to act as named accountholders on the secret Israeli bank accounts. The co-conspirators then recommended and facilitated the transfer of client funds to the secret accounts and prepared and filed tax returns that falsely reported the money sent offshore as a false investment loss or a false business expense, or entirely omitted any income earned by a client from a foreign source. The Kalais also failed to disclose the clients’ secret accounts on tax returns that they prepared, and caused the clients to fail to file FBARs with the U.S. Treasury as required.

The Kalais will have some time to think over what they did. David received 36 months at ClubFed and a $286,000 fine while his son received 50 months at ClubFed and a $10,000 fine. An alleged co-conspirator, David Almog, remains at large. Meanwhile, three customers (so far) of the Kalais and United Revenue Service have pleaded guilty to tax charges, and there are likely more charges coming.